Political Influence and Declarations of Bank Insolvency in Japan

Imai, Masami

doi:10.1111/j.1538-4616.2008.00190.x

Cited by 41 publications

(16 citation statements)

References 74 publications

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“…Given the short-term horizon of politicians, captured regulators would thus heavily discount the future moral hazard repercussions of today's resolution actions. Empirical evidence supports the bias in resolution decisions if supervisors are subject to political capture Dinc, 2005, Bongini, Claessens andFerri, 2001;Imai, 2009).…”

Section: The Role Of Governmentmentioning

confidence: 99%

Finance, growth and fragility: the role of government

Beck

2013

IJBAAF

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This is the accepted version of the paper.This version of the publication may differ from the final published version. distinguish between the policy view that relates financial sector development to an array of necessary policies and institutions, the historic view that relates financial sector development to historic and cultural factors, and the politics view that explains financial sector development as the result of political conflicts and decisions. These three views of financial sector deepening imply a different role for government. I discuss examples from the developed and developing world and repercussions for current reform discussions. Permanent

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Section: The Role Of Governmentmentioning

confidence: 99%

Finance, growth and fragility: the role of government

Beck

2013

IJBAAF

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“…2 This literature has analyzed how the official power granted to bank supervisors is determined by countries' political systems (Barth, Caprio and Levine, 2006), how politics influences supervisors' decisions to intervene in problem banks (Brown and Dinç, 2005;Imai, 2009), and how the skills and size of supervisory staffs vary with countries' and other regulators' characteristics (Goodhart, Schoenmaker and Dasgupta, 2002). My paper contributes to this literature by studying examinations, which is the main tool of supervision and perhaps the most understudied.…”

Section: Introductionmentioning

confidence: 99%

How Do Joint Supervisors Examine Financial Institutions? The Case of State Banks

Rezende

2011

SSRN Journal

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This paper studies what determines whether federal and state supervisors examine state banks independently or together. The results suggest that supervisors coordinate examinations in order to support states with lower budgets and capabilities and more banks to supervise. I find that states with larger budgets examine more banks independently, that they accommodate changes in the number of banks mostly through the number of examinations with a federal supervisor and that, when examining banks together, state banking departments that have earned quality accreditation are more likely to write conclusion reports separately from federal supervisors. The results also indicate that regulation impacts supervision by changing the characteristics of banks. Independent examinations decrease with branch deregulation, which is consistent with the facts that this reform consolidated banks within fewer independent firms and that state and federal supervisors are more likely to examine large and complex institutions together.JEL Classification: G21, G28.

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“…Moreover, politicians may intervene in the regulatory treatment of failed banks in order to maximize their own utility functions. This regulatory capture view in failed bank treatment is supported by empirical evidence showing bank closures to be less likely before elections (Brown and Dinç, 2005) and regulators delaying closure of insolvent banks located in the constituencies of senior politicians (Imai, 2009). Caprio et al (2010) Kane and Klingebiel (2004), who predict that nancial intermediaries that are treated with accommodating policies will suer from distorted incentives, and engage in gambling for resurrection, eectively externalizing their risk-taking to the taxpayer and, hence, society at large.…”

Section: How Distorted Incentives Around Bank Insolvency Can Harm Thementioning

confidence: 68%

“…Existing research tests the eects on bank behaviour (Caballero et al, 2008;Peek and Rosengren, 2005;Igan and Tamirisa, 2008), regulatory behaviour (Brown and Dinç, 2011;Imai, 2009), and individual clients (Djankov et al, 2005) of insolvent banks.…”

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confidence: 99%

Catharsis—The real effects of bank insolvency and resolution

Korte

2015

Journal of Financial Stability

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implemented by relating bank assets that have been resolved after undercutting a specic capital ratio to all bank assets of banks that have undercut this ratio. Hence, the indicator essentially captures the idea of how rules-based failed banks are resolved. In addition,we construct a panel of more than 2 million rm-year observations containing economic performance data of non-nancial rms. As the relation between real economic growth and the nancial system might be prone to reverse causality and endogeneity issues, we employ an identication framework consisting of several econometric techniques which helps us establish causality.Our results conrm the hypothesis of a positive`catharsis eect' and yield three important ndings. First, we nd a comparably stronger implementation of a hypothetical positive capital closure rule to have a positive and statistically as well as economically signicant eect on individual rm growth. To underline the causality of this relation, we show that the eect is particularly pronounced for rms that are structurally more dependent on bank nancing. With regard to economic signicance, our results suggest that the`catharsis eect' can cause a dierence of roughly 0.4 to 0.6 percentage points in rms' growth rates. Second, investigating the transmission channels of the`catharsis eect', we nd that it essentially works through beneting better quality rms (`quality channel') and reallocating credit towards rms that need it most (`quantity channel').Third, additional analyses suggest that the`catharsis eect' works best under specic economic conditions, for example in open banking systems that provide high access to international nance and hence mitigate potential negative consequences of insolvent bank liquidation. All our ndings are robust to various specications.Taken together, our results strongly underline the signicance of bank insolvency and resolution for the real economy. AbstractIn general, banks play a growth-enhancing role for the real economy. However, distorted incentives for banks, depositors, and regulators in connection with bank insolvency may corrupt banks' credit allocation and monitoring decisions, leading to suboptimal real economic outcomes. A rules-based prompt resolution regime for insolvent banks may reestablish the incentive system and provide for economically superior credit allocation and monitoring. We test the hypothesis that regulatory insolvency has a cathartic eect using a large rm-level dataset and proposing a new indicator to measure the strength of catharsis. Employing an instrumental variable setup and an interaction approach, we try to overcome concerns about causality and potential endogeneity which are usually inherent to research into the real economic implications of bank regulation. We nd a comparably stronger implementation of a hypothetical positive capital closure rule to have a positive and statistically as well as economically signicant eect on individual rm growth -particularly for rms that are structurally more dependent on bank nancing. Our ndings ...

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Political Influence and Declarations of Bank Insolvency in Japan

Cited by 41 publications

References 74 publications

Finance, growth and fragility: the role of government

Finance, growth and fragility: the role of government

How Do Joint Supervisors Examine Financial Institutions? The Case of State Banks

Catharsis—The real effects of bank insolvency and resolution

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